August 20, 2014

A new Ninth Circuit decision points to a possible way to avoid arbitration clauses in the take-it-or-leave-it "adhesion" contracts that electronic retailers post on their websites.

Online vendors want you to accept their terms of service. That way, you will bind yourself to a form contract that mainly favors the website owner. A key clause in the pact will provide that you waive your right to resolve any complaint you may have against the vendors in court or on a class basis.

You can't avoid doing things the e-tailers' way. But to get you in their clutches they must take steps that enable them to prove that you in fact accepted the online agreement. As the Ninth Circuit explained in a class action relating to a messy fire sale of HP TouchPads by Barnes and Noble:

Contracts formed on the Internet come primarily in two flavors: “clickwrap” (or “click-through”) agreements, in which website users are required to click on an “I agree” box after being presented with a list of terms and conditions of use; and “browsewrap” agreements, where a website’s terms and conditions of use are generally posted on the website via a hyperlink at the bottom of the screen.

Guess which approach works better? The one that doesn't require you to do something that shows you agree to the terms of service? Or the one that does?

Bingo:

[W]here, as here, there is no evidence that the website user had actual knowledge of the agreement, the validity of the browsewrap agreement turns on whether the website puts a reasonably prudent user on inquiry notice of the terms of the contract.

[W]here a website makes its terms of use available via a conspicuous hyperlink on every page of the website but otherwise provides no notice to users nor prompts them to take any affirmative action to demonstrate assent, even close proximity of the hyperlink to relevant buttons users must click on—without more—is insufficient to give rise to constructive notice.

Online retailers that rely on the less-intrusive "browsewrap" approach may want to rethink their methodology. "Clickwrap" pacts may annoy customers, but they stand a better chance of passing muster as a binding contract.

Benefits may include avoiding a class action.

Lawyers who represent consumers will also want to take notice of Nguyen v. Barnes & Noble, Inc. That consumer fraud or antitrust case that you turned down because of the online arbitration clause barring class actions? Take a new look at it. If the bad actor use browsewrap instead of clickwrap, your client-in-waiting may have a viable case.

NEWS FLASH

Blawgletter will soon launch a redesign. You'll find it easier to read and navigate. Details to follow.

Ms. Salzman serves as Co-Chair of Robins Kaplan's Antitrust and Trade Regulation Group and as co-lead counsel in blockbuster antitrust class actions, including In re Automotive Parts and In re Air Cargo Shipping Services. Recognition of her knowledge and skill have come from Chambers USA, Lawdragon, and Benchmark Litigation, to name a few. Check out a recent interview by Law360.

Ms. Hollywood prosecutes class actions that involve price-fixing, unlawful monopolization, and other anticompetitive practices. She heads up the associates who handle In re Air Cargo Shipping Services.

There has been a lot of buzz in recent months over the highly publicized Amazon-Hachette dispute, which was first reported by The New York Times when negotiations over renewed contract terms between the online retailer and publisher broke down earlier this year. While details regarding the exact nature of the dispute have not been divulged, the general consensus is that Hachette prefers to return to an agency pricing model, which allows publishers to set the prices of their own books. Amazon is adamantly opposed to this switch because the agency model would prevent the kind of drastic discounting that Amazon is known for. It’s no secret that publishers deem Amazon’s discounting practices a violation of antitrust laws. Recent debate, however, has focused on whether US regulators tend to agree.

Of course, all of this follows from that other much-publicized dispute in which the Department of Justice successfully claimed that the six largest publishers in the US, including Hachette, unlawfully colluded with Apple to raise e-book prices when they introduced the agency pricing model in response to Amazon’s deep discounting back in 2010. The publishers settled the case and agreed to certain restrictions, which largely enabled Amazon to continue discounting e-books. Moreover, US District Judge Denise Cote’s final order, issued in 2013, laid out a staggered schedule for the various publishers to renegotiate their contracts with retailers. As it turns out, Hachette was up first.

Reportedly, Amazon demanded better terms from Hachette, and negotiations rapidly deteriorated. Amazon retaliated by declaring literary war on Hachette in an effort to force the publisher’s hand. Specifically, Amazon delayed delivery of books published by Hachette for up to three weeks, removed the pre-order option for Hachette titles, charged more for Hachette books, and even suggested that readers might enjoy a book from another author instead. To add to the hype, Hachette authors simultaneously took to social media to denounce the mammoth online retailer for offenses ranging from bullying to extortion to a violation of antitrust laws.

Meanwhile, across the pond, recent reports indicate that the European Commission has begun a preliminary investigation into complaints that Amazon violated European competition law by engaging in similar tactics with Bonnier AB, a German publishing trade group. Specifically, Bonnier claims that Amazon delayed delivery of its books in order to force the publisher to accept lower prices for its e-books. European antitrust law expressly forbids companies with a dominant market position from engaging in such abusive conduct.

All of this has led many to ponder whether Amazon’s recent exploits might (finally) raise the eyebrows of US antitrust watchdogs.

Monopoly, Monopsony – What’s The Difference?

While commentators often attach the word “monopoly” to Amazon, the real inquiry is whether Amazon is, instead, a “monopsony.” An unlawful monopsony, the lesser known violation in the antitrust family, occurs when a buyer of goods has the power to unlawfully lower the prices of the products that it buys. By contrast, an unlawful monopoly occurs when a seller of goods has the power to unlawfully raise the prices of what it sells. Both result in a misallocation of resources, which harms consumers and distorts markets, and therefore each violates antitrust law.

The theory of monopsony assumes that the monopsonist has the power to dictate terms to its suppliers. However, to show monopsony, one must show that suppliers are forced to sell their products at prices so low that the loss results in a reduction of supply. Harm to the market results when suppliers are, in turn, driven out of business, or have less money to invest in new innovation, technology, equipment, and/or expansion. In that sense, a monopsony often does not directly affect consumers in the traditional way that unlawful monopolies do.

As an added wrinkle, buyer power without true monopsony power can actually benefit consumers. Indeed, when buyer power pushes prices down without resulting supply reduction, consumers enjoy lower downstream prices. Consumers are harmed, however, when output reduction is coupled with a misallocation of resources. While consumers may not immediately feel the effects of the monopsony, harm resonates nonetheless as wealth is transferred to the monopsonist, and consumers are faced with higher prices and fewer options.

For its part, Amazon has a strong reputation for consumer-friendly discounting. Thus, as consumers enjoy discounted e-book prices, it is difficult to imagine how they are being harmed by Amazon’s practices. The relevant question is whether Amazon’s bullying tactics with publishers could effectively result in a reduction of books being published.

Could Amazon Be The First Illegal Monopsony?

Significantly, no US court has yet to find a single company guilty of an unlawful monopsony. The case that came the closest was Weyerhaeuser Co. v. Ross-Simmons Hardware Lumber Co., 549 U.S. 312 (2007). In Weyerhaeuser, a dominant purchaser of logs was accused of overbidding, and driving its smaller rival out of business. While the trial court and Ninth Circuit found for the plaintiffs, agreeing that the defendant paid “more than it needed to pay” for logs, the Supreme Court reversed 9-0.

The Weyerhaeuser Court concluded that predatory buying must be evaluated under a much stricter analysis than that contemplated by the Ninth Circuit. Specifically, the Court held that a buyer is liable only if (1) buy-side bidding caused costs to rise higher than revenues, and (2) the defendant has a “dangerous probability of recouping the losses” through an “exercise of monopsony power.” It is important to note that under the Weyerhaeuser standard, recoupment via higher prices in the downstream market does not satisfy the test. Rather, the Supreme Court required recoupment “through the exercise of monopsony power,” that is – by forcing lower prices on the buy-side.

Since Amazon first introduced its Kindle product, it has priced e-books below what it was buying them for. For example, if Amazon bought an e-book from Hachette for $15, it resold it to a consumer for $9.99, losing $5.01 per e-book. Not surprisingly, e-book consumers flocked to Amazon helping the online retailer to grow exponentially over the years, and causing publishers and authors to rely on Amazon’s sales. In fact, some have even suggested that consumers use Amazon as a modern-day card catalog. According to that theory, if a book or author is not sold on Amazon, that book or author must not exist.

With its low prices and established reputation as a consumer-friendly reading room of sorts, there is little debate that Amazon is a dominating force in the e-book market, both on the buy-side and sell-side. Varied reports have placed Amazon’s share of the e-books market from anywhere between 60 to 90 percent. Moreover, Amazon accounts for nearly 65 percent of Hachette’s e-book sales. Thus, Amazon certainly has market power in the antitrust sense, and its buyer power alone cannot be said to be merely circumstantial.

Now it seems that Amazon is attempting to enhance its bottom line by wielding its power in the market to achieve more favorable pricing from publishers, rather than by increasing its own prices downstream, i.e. recoupment through the exercise of monopsony power. It remains to be seen, however, whether Amazon’s tactics will result in a reduction of output. Publishers will certainly be put out by larger discounts to Amazon and expensive services. Authors will likewise suffer if publishers are, in turn, unable to pay large advances, or are paid less per book due to higher discounts paid to Amazon. Stifling authors could certainly lead to fewer publications for consumers to choose from, and a reallocation of wealth flowing directly to Amazon.

Interestingly, in an effort to break its standoff with Hachette, Amazon executive David Naggar, wrote an open letter to Hachette authors proposing to take them out of the middle of the dispute by promising them a “big windfall.” Specifically, Amazon dangled 100% of the sales price of every Hachette e-book sold on Amazon to Hachette authors. However, Hachette quickly rejected the proposal, calling it “suicidal.” Whether Amazon is trying to avoid being labeled an unlawful monopsonist by this recent proposal, or whether it is just trying to win back the hearts of frustrated authors and consumers alike remains to be seen.

Conclusion

The general consensus among antitrust analysts is that US regulators are not likely to intervene in what has been labeled by some as a simple business dispute. Indeed, many view this dispute as normal business dealings between a retailer and supplier, and maintain that the enormous attention merely stems from the visibility and notoriety of the parties involved. However, as Amazon continues its fight with Hachette, and its contracts with the remaining publishers start to expire, perhaps US regulators will be inclined to take a closer look.

July 11, 2014

Will quick review of a final judgment in just one of many cases that make up a large multi-district litigation bog the MDL process down -- or make it work better?

Defense lawyers insist that consolidation of cases before a single district judge (by the U.S. Judicial Panel on Multidistrict Litigation) changes the general rule that a final judgment against a party gives it (the party) the right to take an immediate appeal. The Supreme Court will decide the issue in the coming Term. SeeSupreme Court Takes LIBOR Case.

While the outcome in the Supreme Court may not turn formally on the efficiency question, the issue has practical importance for clients and lawyers who participate in the MDL process.

Who Gains from Interlocutory Review

Defendants will normally not want appeals from final judgments in individual cases for the simple reason that, by definition, they will have won in the district court handling the MDL. An appeal puts that victory at risk.

If the defendants can hang on to the win, they can use it to drive down the settlement value of the entire MDL. They potentially could save tens of millions if not billions of dollars.

Plaintiffs, on the other hand, want the opposite. Prompt review by a court of appeals will give them a chance to overturn an adverse ruling. It will also reduce pressure to accept a low-ball settlement.

What the System Wants

Allowing interlocutory appeals from final judgments makes more sense from the perspective of the federal judicial system. The system wants just and right outcomes. Its ability to get them depends on correct determinations of legal issues. Review of a ruling by a single district judge on a key matter of law by a panel of appellate judges enhances the likelihood that the MDL process will yield a fair result.

Blawgletter said as much recently to a reporter from Policy and Regulatory Report, Ryan Lynch. Defendants "are having trouble", we said, with the prospect of an immediate appeal "because they now have risk that they would prefer not to have. It's not that there is any inefficinecy happening. It is that there is the potential that they are going to suffer a loss on something that they have [so far] won."

July 01, 2014

Get ready for the Supreme Court to resolve a question that has divided courts of appeals for years:

Whether and in what circumstances is the dismissal of an action that has been consolidated with other suits immediately appealable?

If that doesn't sound sexy enough for you, consider that the issue arises in massive litigation over manipulation of LIBOR -- the London Inter-bank Offer Rate, a key interest rate benchmark for lenders and borrowers worldwide. In one of the cases that constitute In re LIBOR-Based Financial Instruments Antitrust Litigation, No. 1:11-md-02262-NRB (S.D.N.Y.), the plaintiffs alleged only a federal antirust claim, and as a result of the district court's dismissal of all antitrust claims the case effectively ended for those plaintiffs. Must they nonetheless wait until everyone else finishes with their surviving claims before these antitrust-only plaintiffs can prosecute an appeal?

Alison Frankel of Reuters offers a splendid exposition of the background, the stakes, and the potential impact of the Court's granting of review. Frankel's piece highlights the effect of review on Blawgletter's clients in the case -- and quotes us to boot:

[I]t’s certainly good news for Libor claimants that the U.S. Supreme Court granted a petition for certiorari by bond investors whose case [District Judge] Buchwald dismissed in its entirety when she bounced the Libor antitrust claims. “We are both optimistic and pleased,” said Barry Barnett of Susman Godfrey, who represents a class of investors in over-the-counter securities in the Libor litigation and filed an amicus brief urging the justices to grant the bond investors’ appeal. The cert grant, Barnett said, means that as the Libor class moves ahead with discovery on the claims that have survived Buchwald’s dismissal rulings, they have some hope that the federal antitrust claims will be revived.

The Court will likely hear oral argument in the appeal later this year.

June 30, 2014

A June 25th ruling by the Supreme Court cleared the way for workers to bring claims under the Employee Retirement Income Secuirity Act of 1974 against ERISA plan fiduciaries who imprudently allow or require the employees to invest in their employers' stock. But the window of liability for imprudent fiduciaries might not last very long -- perhaps less than a quarterly reporting period.

Matching with stock

The decision came in the context of a public employer, First Third Bancorp, that -- like many other public companies -- matched its employees' voluntary contributions to their 401(k) plans but only with company stock in First Third's employee stock-ownership plan or ESOP.

Investing in company stock creates problems for the 401(k) plan beneficiaries when the company's stock becomes a bad investment. A drop in the stock's market price can badly deplete their nest eggs. But plan fiduciaries, who usually occupy high executive positions with the employer, have powerful incentives to keep the bad news from the shareholders, including the 401(k) plan participants.

Presuming prudence

A majority of federal courts compounded the difficulty by absolving plan fiduciaries of blame even though they knew the stock was in trouble yet continued to allow or require plan participants to own the stock. These courts did so by raising a "presumption of prudence". The presumption protected their decision to buy or hold overvalued company stock unless plan beneficiaries could "make a showing that would not be required in an ordinary duty-of-prudence case, such as that the employer was on the brink of collapse." First Third Bancorp v. Dudenhoeffer, No. 12-751, slip op. at 1 (U.S. June 25, 2014).

Writing for a unanimous Court, Justice Stephen Breyer held that "no such presumption applies." Id."ESOP fiduciaries are subject to the same duty of prudence that applies to ERISA fiduciaries in general," he wrote, adding the obvious point that the fiduciaries "need not diversify" the assets in the ESOP itself. Id.at 1-2.

Plausible claim?

The balance of the opinion dealt with whether the plaintiffs had stated a plausible claim under Twombly and Iqbal.

The Court had doubts. It pointed to the fact that, as insiders who had access to non-public information about the First Third's true financial condition, the ERISA plan fiduciaries couldn't use their insider knowledge for the benefit of plan participants without risking violation of laws against insider-trading. The Court also noted that taking steps to halt investment in the ESOP could do more harm to the participants than good by prompting a sell-off of the company's shares, causing the value of the ESOP holdings to plummet. Id.at 18-20.

The Court remanded the case to the Sixth Circuit to sort out whether, in light of the concerns about insider trading and more-harm-than-good, the complaint stated a plausible imprudent investment claim.

Meeting the test

Can the plaintiffs overcome those hurdles?

The answer may turn on whether the fiduciaries could as a practical matter change how the plan sponsor deals with matching contributions and any holding requirement without affecting the market price of the stock. Presumably that could happen, but the fiduciaries would have to take care that they meanwhile complied with all disclosure obligations under applicable securities laws. As companies must report at least quarterly on their financial condition, the period over which an imprudence claim could extend may necessarily last fewer than three months.

Justice Ginsburg, in concurrence, noted that "[a]dvancing price impact consideration from the merits stage to the certification stage may broaden the scope of discovery available at certification" but "should impose no heavy toll on securities-fraud plaintiffs with tenable claims." Id. concurrence at 1. Justices Breyer and Sotomayor joined her opinion.

Contrary to Justice Ginsburg's optimistic view, the Court's allowance of attacks on the presumption of reliance at the class certification stage will vastly increase the expense of litigating certification issues. Event studies and other analyses by experts will result in expenditures of hundreds of thousands if not millions of dollars.

The number of law firms that can afford to prosecute securities class actions will continue to shrink.

June 18, 2014

Apple has settled up to $841 million of antitrust claims by state attorneys-general and a nationwide class of consumers who bought e-books from Apple and its publisher co-conspirators.

The pact comes almost a year after U.S. District Judge Denise Cote in New York held Apple civilly liable for conspiracy to fix prices, a violation of section 1 of the Sherman Act. The United States brought the case, primarily for injunctive relief. Judge Cote entered a final judgment on September 5, 2013.

Before the trial, Apple had rejected a settlement offer by the Deparment of Justice before trial because, according to Apple's CEO Tim Cook, "we're not going to sign something that says we did something that we didn't do".

Amount unclear

We don't know how much Apple will pay. Its maximum exposure to the class and the states totaled $840,763,122, three times the plaintiffs' estimate of actual overcharges for e-books ($280,254,374 -- a number that reflects a 17 percent inflation of e-book prices as a result of the conspiracy).

The Wall Street Journal weighs in

Should we feel sorry for Apple? The Wall Street Journalthinks so. It absolves Apple and the publishers for engaging in what criminal law would deem a felony. It points its finger of blame instead at the Department of Justice and Judge Cote.

What did they do, you ask? Instead of "letting the market decide whether the wholesale model [which Amazon preferred] or agency model [which the conspirators agreed to adopt] should prevail", Judge Cote "dictated the outcome by ruling against Apple."

Issing-may the oint-pay

But the "market" never had a chance to decide which model to use precisely because Apple and the publishers perverted the market through collusion. They did so to drive up the prices they could charge. Worse, in the absence of the Apple-publisher cartel, the market plainly would have chosen the wholesale model that Amazon preferred. The squelching of competition by means of an illegal agreement -- not the actions of the court or the DOJ -- dictated the outcome.

Astonishingly, the WSJ purports to regard Apple and the publishers as innocent of wrongdoing. It asserts that Apple simply "offered e-book publishers the same [agency model] deal" and that they all coincidentally accepted the offer. But the evidence showed hard-core collusion -- the kind involving secret CEO-only luncheons in private rooms of fancy restaurants and ensuing lock-step increases in prices -- not indepedent action. As Judge Cote noted in her post-trial opinion on liability:

The question in this case has always been a narrow one: whether Apple participated in a price-fixing scheme in violation of this country's antitrust laws. Apple is liable here for facilitating and encouraging the Publisher Defendants' collective, illegal restraint of trade. Through their conspiracy they forced Amazon (and other resellers) to relinquish retail pricing authority and then they raised retail e-book prices. Those higher prices were not the result of regular market forces but of a scheme in which Apple was a full participant.

The WSJ's claim that Amazon's share of e-book sales "has soared" as a result of the DOJ's win is a combination of argle-bargle and mumbo-jumbo. The reasons that the paper cites for the supposed wind beneath Amazon's wings have nothing to do with breaking up the Apple-publisher cartel.

On the contrary. There is no discernible connection between the facts that Barnes & Noble "pulled back on its Nook", that "Sony and Samsung exited the e-reader market", and that Apple "seems focused elsewhere" and the breakup of the cartel. And Amazon's market share didn't "soar". It simply went back to where it was before the unlawful conspiracy. Seeid. at 14 ("Through 2009, Amazon dominated the e-book retail market, selling nearly 90% of all e-books.").

Prices should have risen

The WSJ ends by urging that antitrust enforcers should "stand aside and let the market determine winners and losers." That's all well and good, but if the WSJ is right that the DOJ has quashed competition, ebook prices would have soared in the last couple of years, right?

Just the opposite has happened As the leading authority on e-book prices said this on April 30, 2014:

In the nearly two years Digital Book World has been measuring the average price of a best-selling ebook, the tend has been unmistakable: down.

Best-selling ebooks cost more two years ago than they do now. Two years ago, many of the best-selling ebooks were agency priced, meaning that publishers determined the price of the books and the price was usually $10 and up.

Today, no publishers price their own books and retailers have generally lowered prices to compete with each other and sell more units.

Despite all that, L. Gordon Crovitz, who wrote the WSJ piece, preaches "humility" to Judge Cote and the DOJ. He might want to look in the mirror.

A challenge

The Second Circuit has Apple's appeal before it now. Argument will likely take place by year-end, and a decision will follow in due course.

In the meantime, Blawgletter issues this challenge to Mr. Crovitz: When the Second Circuit rules, we'll each write about it and explain how we either got it right or got it wrong.

June 04, 2014

Investors who wished for a helping hand in pursuing claims against banks that sold them exotic debt instruments instead got a kick in the pants from the Second Circuit today.

No no-admit deals

In 2011, U.S. District Judge Jed Rakoff famously refused to approve a consent decree between the Securities and Exchange Commission and Citigroup. The pact concerned the financial behemoth's possibly fraudulent role in marketing and selling interests in a risky "fund". The "Fund’s assets . . . were primarily collateralized by subprime securities tied to the already faltering U.S. housing market." Securities and Exchange Comm'n v. Citigroup Global Markets, Inc., No. 11-5227, slip op. at 4 (2d Cir. June 4, 2014).

Judge Rakoff rejected the deal largely on the ground that Citigroup did not admit to facts that would support the injunctive relief to which it had agreed. He wrote:

An application of judicial power that does not rest on facts is worse than mindless, it is inherently dangerous. The injunctive power of the judiciary is not a free‐roving remedy to be invoked at the whim of a regulatory agency, even with the consent of the regulated. If its deployment does not rest on facts—cold, hard, solid facts, established either by admissions or by trials—it serves no lawful or moral purpose and is simply an engine of oppression

The Second Circuit vacated the ruling. It held that the district court abused its discretion by requiring that the record establish the "truth' about the allegations underlying the SEC's charges against Citigroup.

Investors and their lawyers should note the panel's view about a major reason that Citigroup did not want to concede it did something wrong -- the issue-preclusive (or, if you prefer old school, collateral estoppel) effect of the consent decree. " "Nor can the district court reject a consent decree on the ground that it fails to provide collateral estoppel assistance to private litigants—that simply is not the job of the courts." Id. at 27.

Winners and losers

With an admission of guilt by a Citigroup (or a Bank of America or a Credit Suisse or another financial institution), unhappy investors would not have to prove wrong-doing. They would mainly need to show that they bought a bad investment during the relevant time period and lost money on it.

The Second Circuit's decision paves the way for more no-admit settlements with the SEC. That is good news for banks, bad news for investors.

June 01, 2014

Plenty of public companies pay their executives very large salaries, bonuses, and other goodies, including stock grants, stock option awards, and rides in fancy jet planes.

The WSJ recently reported that the median pay for CEOs of "big companies" totaled $11.4 million in 2013. The biggest earner, Oracle's Larry Ellison, took home $76.9 million last year.

Blawgletter has wondered about what, other than a board's imagination, constrains its members in what it has the authority to grant executives.

A new case out of the Third Circuit -- which includes the corporate law capital of the U.S., Delaware -- reminds us of the difficulties of challenging seemingly outlandish pay packages.

A taxing question

The familiar business judgment rule generally protects board decisions about pay for officers of the company they serve. That rule gives directors a great deal of leeway, at least so long as they do not have a personal interest, financial or otherwise, in voting for the compensation package or plan.

But the Internal Revenue Code also has a rule that could cabin executive pay. It provides that a company may not deduct pay above $1 million unless it jumps through several hoops, including making a study about the justifications for paying the big bucks. Failure to do the work could result in disallowance of the deduction, resulting in loss to the company.

Enter Redstone

A shareholder of Viacom complained about the $100 million or so that the company's board awarded to board chairman Sumner Redstone and two other high execs. He contended that the Viacom board's Compensation Committee failed the test for disinterestedness and behaved so arbitrarily as to run afoul of the business judgment rule.

The Third Circuit upheld dismissal of the shareholder's derivative charges. Robert Freedman, the shareholder, did not allege facts that called into question the independence of at least six of the 11 Compensation Committee members. Nor did he overcome the presumption of proper decision-making under the business judgment rule. Freedman v. Redstone, No. 13-3372 (3d Cir. May 30, 2014).

The court also affirmed dismissal of Freedman's direct claim, in which he alleged that the board had violated the Internal Revenue Code provision requiring shareholder approval of pay in excess of $1 million before the company may claim a deduction for the over $1 million compensation. The panel ruled that 26 U.S.C. 162(m) doesn't create voting rights and therefore could not have required Viacom to count non-voting shares in determining whether enough shareholders approved the pay package.

Lessons

As executive pay continues to mount, the inclination to challenge it as excessive will grow as well. But you have to have sharp weapons to succeed in this sort of fight. If you cannot show that the board or board committee lacked a majority of independent members, you will almost certainly fail.